For investors, digital technology has already vastly improved the liquidity of financial instruments, including internet bank deposits. So far if anything, these developments have been at the expense of bank liquidity (funding stability). It is very important not only to halt any further erosion, but also to grasp the opportunity new technology now makes possible to improve it.
The chronic problem for bank liquidity is that those that fund banks demand the right to redeem their deposits at short, or no, notice (i.e. they are unstable) while the loans banks make are longer –so called maturity transformation. A “chain reaction” may therefore develop leading to a banking crisis if, for any reason sufficient depositors lose confidence in their bank, – or more fragilely, in the confidence of their fellow depositors.
The current approaches: the well-established “Lombard Street” model where the central bank provides lender of last resort funding reduced, but did not eliminate, crises; and the new Basel III, while expected to be effective, is very expensive. New digital technology however opens the way for inter-depositor liquidity to be harnessed to allow the creation of a stable funding base at a much lower cost. The briefing provides a forum to discuss the current bank liquidity issues and how new technology might be deployed to address some of these.
About the Speaker:
Mark Sheppard is a banker with twenty-eight years’ experience and very strong global market knowledge, gathered while working for four major global banks and NAB.
Most recently, his work has focussed on the management of liquidity risk and the various consequent regulatory responses to this, including Basel III. While previously considered a relatively inconsequential risk, liquidity is now critical for almost all markets and institutions. This work has culminated in the development with GMEX-Group of a new web-based traded bank deposit, which offers a more stable funding source for banks.
His prior experience has been very broad. Originally an engineer, from 1996 to 2008 he ran the Asia Pacific structured transactions teams of four major banks. While the structured finance seems specialised, it was also actually very broad consisting of the design and execution of transactions using appropriate financial instruments (including derivatives) with the various types of entities found in different countries.